The conference, aimed at promoting REITs amongst investors deliberated on some of the lessons learned in the 50 years REIT journey and the formulation of the Best Practice Recommendations for SA REITs.

Ultimately the decision for Internal vs External management rest on the corporate governance principle requirements of the REIT. Fitch Ratings found that internally managed REITs are no better at controlling administrative expenses versus externally managed companies, having analysed financial data on 18 externally managed and 106 internally managed U.S. REITs.

Andrew Parsons, MD of Resolution Capital Australia warned that External management structures bring the challenge of serving the investor and the management company. “In times of duress, the balance will invariably shift to the management company.”  

According to Parsons, REITs in Australia, America and Europe were narrowing their property focus, moving more towards specialisation and simplification, rather than expanding their portfolio.

Whilst the South African REIT legislation allows for 25% non-property income, Metope Investment Managers CEO, Liliane Barnard, cautioned property companies to not diversify out of property, but to heed lessons learned from Australian companies which had increased risk by investing out of the sector.

eProp Commercial Property News expects further consolidations in the sector as SA REITs bulk up to improve liquidity and attract international investors. There will be fewer new listings as smaller funds would have to resist the urge to join or sell off assets to bigger funds whilst facing higher cost of finance and tough competition for quality stock.

Mduduzi Ngwenya, eProp Commercial Property News MD